Heidrick & Struggles International, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Hydric and Struggles Q4 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone keypad. If you require any further assistance, you may press star 0. And without further ado, I would like to welcome your speaker for today, Ms. Suzanne Rosenberg. Ma'am, the floor is yours.

Good afternoon, everyone, and thank you for participating in Hydric & Struggle's 2020 Fourth Quarter Conference Call. Joining me on today's call is our President and CEO, Krishnan Rajagopalan, and Chief Financial Officer, Mark Harris. We have posted our fourth quarter slides on the IR homepage of our website at hydric.com, and we encourage you to view them for additional context, but we won't be referring to specific page numbers during our opening remarks. In our materials, we refer to non-GAAP financial measures that we believe provide additional insights into our underlying results. A reconciliation between GAAP and non-GAAP financial measures can be found in the release. Also, in our remarks, we will be making forward-looking statements and ask that you please refer to the Safe Harbor language contained in our news release. Krishnam, I'll now turn the call over to you.

Suzanne, thank you. Good afternoon, everyone, and thank you for taking the time to join our call. By all accounts, 2020 was an unprecedented year, and I couldn't be more proud of our team's ability to meet the moment, demonstrate resilience, and work collaboratively. It's often through challenging times that we prove what we're truly capable of, and I'm so proud of our Hydric team. Our ability to advise and work with clients in new and different ways has enabled us to more than hold our own in this market. We never stopped innovating. In some ways, the pandemic was an accelerant. We adapted our tools faster, we created virtual solutions, and introduced brand-new offerings. In addition to our quick actions and pivots, we were able to reduce our costs while remaining committed to driving our strategic investments in diversification, innovation, data, and tech enablement. Importantly, the transformation journey we embarked on several years ago positioned us very well as we entered the pandemic in early 2020. Prior investments in products and IT infrastructure, digitization of search side of our business, The build-out of hybrid consulting has led to higher value-added differentiated solutions for our clients and stickier relationships. Together, these factors enabled us to outperform the market last year and perform better than we have historically in different recessionary periods. We ended 2020 with a very strong balance sheet, no debt, and the strongest liquidity position in the firm's history. While near-term visibility remains more limited than normal, We began 2021 on our front foot, and we will emerge from this pandemic as an even stronger firm, generating enhanced revenue growth, profitability, and cash flow. Turning to today, the world is still in varying levels of lockdown, but there is a light at the end of the tunnel with new vaccines being introduced and rolled out. In 2021, we will continue to transform our business invest in new ideas, and broaden our capabilities and services with new technology and data-driven offerings. We are well positioned to take advantage of market opportunities and improving demand. In many ways, the pandemic has accelerated both demand and transformation, not only in how our clients' needs are evolving, but also in how our firm operates. Our clients are embracing the digital delivery of our services, and we're seeing increased demand across a wide range of areas, including healthcare and life sciences, industrial, and global technology services. Certainly, functional work across technology, risk, compliance, and finance remains strong as organizations continue to transform and reassess their business models accelerated by the pandemic. Diversity and inclusion, or D&I, and sustainability remain important focus areas across all industry practices in the US and globally. We also see continued demand for diverse talent technology and sustainability at the board level. In addition, an increasing number of clients are implementing our culture and inclusion solutions as they navigate the challenges of leading teams in a virtual environment. Our clients are also seeking our leadership assessment and development capabilities to better understand how to operate in a highly volatile and distributed working environment. Client feedback has been extremely positive. and our team around the world is energized in driving collaborative projects and large-scale engagements across search and consulting. We are bringing the full power of Hydric to our clients and effectively helping them accelerate their transformation using our integrated suite of offerings. A great example of this is with a global advertising firm that we started working with as a search client. We have since launched work with this client on inclusive leadership, and they're now expanding into culture work and culture change and helping build a future ready top team. This is the kind of deeper multifaceted journey we want to take with our clients. In addition to our client work, what also stands out is the ongoing transformation of our own business, as well as our resilience and the way we adapted our business in a rapidly changing market. First, we continue to deliver a premium experience to our clients. We seamlessly pivoted to virtual offerings and the way we advise our clients as evidenced by the convening of more than 3,000 leaders in virtual sessions since March of 2020. Despite the pandemic, we confirmed over 4,500 assignments in search, which is only 6% lower than the previous year and demonstrates our strong capability to deliver work virtually. We're leveraging our proprietary tools, including deployment of our Infinity Framework on more than 14,000 candidates and we're executing 100% of our engagements on Hydric Connect globally. Second, we've created and delivered new offerings. Last year, we launched our global D&I practice, which goes beyond just hiring diverse leaders, focusing on creating inclusive leaders, cultures, and organizations to help companies accelerate their business performance. We're uniquely positioned in the market as our dedicated practice brings our search capabilities, that help companies attract and hire diverse leaders together with our consulting experience to help organizations develop and retain diverse talent and create inclusive workplace cultures. Using our ABC methodology, we're gaining traction and helping our clients move the needle on D&I. Building diversity is a large part of many engagements. Today in the Americas, over 40% of our placements are diverse, and that number increases to approximately 60% at the board of director level. We continue to innovate in the future of leadership assessment with our proprietary tools, including our Agile Leader Potential tool, our CEO Success Profile tool, and our new Culture Signature Assessment tool, which provides expanded insights on culture impact. We have generated more than 100 pieces of thought leadership across search and hydric consulting, including written content, videos, and podcasts. And third, we've enhanced the way we operate. For example, firm-wide collaboration continues to improve such that approximately 50% of Hydric Consulting revenue now comes from search introductions. We've expanded our global strategic accounts program in executive search and Hydric Consulting. We're leveraging our IP to create significant opportunities that are helping us drive a robust new business pipeline, and grow our scale and target markets. With new data capabilities, including a new analytics warehouse, we are delivering enhanced dashboards and insights. And we're implementing new ways of working with the optimization of our global real estate footprint and the introduction of our flexible workspace philosophy. These are just some of the ways we are driving our performance and transformation. While near-term economic visibility remains limited, We are committed to capturing additional market share by going to market as one firm with an integrated value proposition. To that end, we have developed a clear executable strategy that allow us to propel our business forward in 2021 and beyond. More specifically, this involves broadening our capabilities and service offerings across search and consulting while moving into adjacent and complimentary areas with an increasingly tech different approach. We see technology as the underpinning for our expanded service offerings, allowing us to deliver our solutions in a more rapid, automated, and scalable way. Some of our new tech-enabled services and tools are already being embedded across our firm, and in the coming quarters, we plan to make additional investments in both our technology solutions and new service offerings. As we think about the strategic capabilities we're developing, our focus is on leveraging our premium brand and our trusted relations at the top of organizations we work with to deepen and broaden our client relationships, advise our clients on their most pressing executive-level issues and agendas, and partner with them on their current and future talent development needs going well beyond talent acquisition. To meet these objectives, we recently evolved our leadership structure for the future to address large-scale opportunities, including the transformation of our global go-to-market strategy and the augmentation of our technology capabilities. Through the lens of this new structure, we have onboarded the right talent to allow us to deliver on our three growth initiatives, which include, number one, growth scale and impact of both search and consulting, delivering a premium service experience and the Hydric way to clients. Number two, expand development of leadership solutions and capabilities, to address new and ongoing client imperatives. And number three, invest in new product development and strategic expansion into adjacent and complementary areas with innovative tech-driven offerings to drive future growth and shareholder value. In addition to driving these growth initiatives, our evolved leadership structure will further centralize our business operations to gain key efficiencies, drive synergies, and strengthen our people management capabilities. It will also enable us to drive consistency across our practices and business lines, further differentiate ourselves in the marketplace, deepen client relationships, and accelerate revenue growth as we provide our clients with a full suite of premium services and offerings. In summary, I again would like to express my appreciation to our team for their remarkable efforts during an extraordinary year for which no one had a playbook. While the near-term macro environment remains more uncertain than normal, we are excited about 2021 and the opportunities we have ahead of us to drive our performance and transformation. We will also continue to develop our people and our culture with a sharpened lens on diversity and inclusion and provide robust, meaningful opportunities to help all our colleagues to grow and thrive at the firm. Now, let me turn the call over to Mark to elaborate on the quarter.

Thank you, Krishnan, and good afternoon, everyone. Thank you for joining our call today. Let me begin by extending my gratitude to our team around the world for the tremendous performance we achieved last year. Despite the extremely difficult market conditions we faced in 2020, our performance allowed us to end the year on solid ground with a very good balance sheet with over $500 million of liquidity, no debt, and continued excellent net cash inflows with nearly $100 million increase in cash and Q4 loans. This sets the foundation for us to execute our strategy in 2021 as we continue to build new product capabilities to address client imperatives and expand and enhance the way we serve the executive space. Turning to our fourth quarter results, as we have done since the second quarter of 2020, I will focus more on sequential trends, as these are more meaningful than the year-over-year results given the ongoing pandemic. Overall, business trends improved sharply from the third quarter trough. Fourth quarter net revenue increased 12.2% from the third quarter of 2020 to $161 million, which exceeded our guidance range. Executive search net revenue was $146.3 million, up 13.2% sequentially, and hydro consulting revenue was $14.7 million, up 2.6%. It also bears pointing out that hydro consulting revenue annually was only down 7% from 2019, which shows great resilience during the economic downturn as we quickly pivoted from providing our services in traditional physical settings to seamless virtual offerings. In executive search, we saw America is leading the way with revenue up 20.5% and Europe revenue up 11.2%, but Asia-Pacific revenue declined 12.4%. While economic uncertainty continues across the markets we serve, we are seeing a clear upward trend in the Americas and Europe. Specifically in Europe, we're seeing some improvements in Denmark, Belgium, France, and Italy, although we did see some softening in the UK, Switzerland, and Germany due to the restoration of lockdowns. And in Asia Pacific, China, Hong Kong, and Korea are showing positive trends, but overall the region is still a bit soft, particularly in Australia, India, and Japan. Hydric Consulting ended the year on a high note, demonstrated by increased demand for talent assessment, our proprietary D&I methodology, and digital delivery of our services across multiple leadership advisory solutions, resulting in larger engagements with our top clients. We entered 2021 with a strong pipeline of new business, and we look forward to building on this momentum and gaining scale in 2021. On the cost side, we saw salary benefits increase 16.3% from the third quarter of 2020. Variable compensation increased $15.4 million sequentially due to the stronger revenue performance in the quarter, and fixed compensation increased $1.5 million sequentially, primarily due to stock compensation, our deferred compensation plan, and retirement and benefits, partially offset by decreases in salaries and payroll taxes post-restructuring. General and administrative expenses decreased $2.4 million, or 7.9% sequentially, to $27.4 million, or 17% as a percentage of revenue, down 370 basis points sequentially compared to the 20.7% of revenue in the third quarter of 2020. Savings were primarily driven by office occupancy and professional fees, partially offset by increases in bad debt and the use of external third-party consultants. Moving forward, we will maintain a close watch on the marketplace, continue to optimize our footprint, and implement a real estate strategy. We expect continued savings in G&A and believe we have the opportunity to further decrease these costs primarily through lease renewals and right-sizing offices where it makes sense. This aligns with our long-term goal to drive G&A to blow 18% of our revenue more consistently. As you may recall during the third quarter, we implemented a restructuring plan to optimize future growth to improve profitability. In connection with this plan and as anticipated, we recorded a restructuring charge in the fourth quarter of $4.3 million primarily related to the real estate strategy. Moving forward, we do expect additional restructuring charges pertaining to the real estate in both the first and second quarters of approximately $4 million to $5 million each quarter. These charges are accounting related due to specific timing of office closings. Notably, we've completed the first phase of our optimization with a 20% reduction in our current real estate footprint. We will continue with our real estate strategy, which consists of three objectives. First, match the footprint to the new expected normal. Second, create an open, collaborative environment, including unassigned workspaces to facilitate working from anywhere. And third, reduce our carbon footprint as part of our long-term sustainability goals. Removing the impact of the restructuring charge I just discussed, adjusting operating income in the fourth quarter was $12.8 million, or a 29.5% increase from the $9.9 million in the third quarter of 2020. Adjusting operating margin was 7.9% versus 6.9% sequentially, 100 basis points improvement. This corresponded to adjusted EBITDA of $18.4 million and adjusted EBITDA margin of 11.4%, which was 40 basis points sequentially up from the third quarter and reflects strong performance given the pandemic-related headwinds. Our adjusted net income in the fourth quarter was $11.6 million compared to $7.7 million sequentially, And our adjusted diluted earnings per share was $0.59 versus $0.39 sequentially, nearly four times our dividend. Now let me add some color in terms of our tax rates, given the complexities around goodwill and restructuring deductibility. Our tax in the fourth quarter of 2020 was 28.7% before restructuring charges, which is a more normalized rate for the quarter. In 2021, with our current footprint and current tax rates, we expect our effective tax rate to remain in the mid-30s. which is consistent with the annual 2020 tax rate of 34.7% achieved before Goodwill and restructuring charges. Before turning to our balance sheet, I now want to touchly brief on our annual performance. The pandemic impacted growth around the world in 2020 and presented a different type of recession than we had historically experienced. When we look at our peak to trough performance, with Q1 largely unaffected, it only took two quarters to reach the bottom before we started improving in the fourth quarter, and we ended the year relatively strong with a full year revenue only down 12.1%. Even with the macro economic headwinds, we also generated 11.4% adjusted EBITDA margin. While near-term visibility remains a bit uncertain, we do project a continued upward trajectory from here. Turning to our balance sheet, we ended 2020 with cash and marketable securities of $336.5 million compared to $332.9 million at the end of 2019, which is an incredible accomplishment to end the year with more liquidity than we started during a pre-pandemic period. In the fourth quarter alone, we increased our cash and marketable securities position by $98.9 million. Please remember, our cash position builds up through the year as we accrue for bonuses. In January, we paid $19.9 million in compensation related to the portion of consultant bonuses that were deferred prior to 2020 And in March of this year, we'll pay out approximately $180 million in variable compensation related to last year's performance. Even with these payments, we'll have liquidity over $300 million, which demonstrates outstanding balance sheet strength and positions Hydric incredibly well to explore opportunities in search, consulting, and potentially new areas outside of our core services, but aligned to our premier human capital services strategy. Last, let me turn to the first quarter outlook. Given the performance we're seeing in our markets and looking at our models, we believe our first quarter revenue will be in the range of $160 to $170 million. Of course, this can also change materially if we see other spikes in COVID-19 or variants of the virus within countries we operate in, and how those respective governments choose to respond, or if governments do not take necessary steps in stimulus, as well as other macro events or acute business events that are unforeseen to hydric at this time. In summary, our fourth quarter performance continues to reflect the impact of the pandemic, but clearly demonstrates the resilience of our team during challenging conditions. We remain focused on strong execution, long-term planning, partnering with our clients, and creating long-term shareholder value. With that, we'd be glad to take your questions. Operator, over to you.

As a reminder, to ask a question, you will need to press star 1 on your telephone keypad. And if your question has been answered, you may press the pound key to withdraw yourself from the queue. We'll pause for just a moment to compile the Q&A roster. Our first question comes from the line of Josh Vogel from Seroti. Your line is open.

Thank you. Good afternoon, Christian and Mark. Thanks for taking my questions. Pretty impressive to see how the business held up throughout 2020. Looking forward to seeing what 21 has in store You know, I'm looking at SG&A, and Mark, you had a comment around, you know, driving the business towards, you know, sub-80%. Can you give a little bit more timing when we think about 2021? Can we set this year, if we take out the plan, $4 to $5 million in restructurings in Q1 and Q2? You know, we understand that. You know, a base of expenses will come back, including some T&E. But, you know, how should we think about a good level of SG&A spend this year?

Sure, Josh. And thanks for the compliment. So the G&A side of it, obviously when we think about 18% or sub-18%, we're more or less focused on kind of that constant revenue that we had prior to the pandemic. So really that $700 million revenue level. 707 I think we had in 19, 716 we had in the year before 2019. And that's really where we kind of see it. If you remember when you go back to those years, we were in the 19-plus percent as a percentage of revenue for G&A. So going sub-18 is really we're going to see the real estate savings coming through. We would expect travel to come back when I kind of give those guided numbers. But what you probably won't see is travel coming back to what it was either. So what we've built in the best that we could with our model is, again, some coming back, Some not. Some of the international travel being there, some not. And we probably won't see what I would say the new norm, which will still, I would imagine, be a fraction of what it was back in 2022, would be my best guess when we really think the economies and everything will kind of bring itself back into form. At that point, we would expect, again, based on our strategy, to have the revenue increase that would still be able to leverage that to at that 18% or sub-18% category.

I appreciate the insights there. It's good to see the consulting business hold up, especially as you pivoted and had seen success in a virtual or remote environment. Given the spending cuts and leaner cost structure in general, has that moved the goalposts in with regard to a revenue level or target that people think consulting needs to get to to be break-even?

In my view, it would still very much hold constant, even though we are doing it through an automated delivery service. The part that still doesn't go away is the human element and the amount of people power that we need to drive successful initiatives with our clients. So there'll be some savings, so to speak, but I would still imagine in terms of the ramp up and the scale is still going to be in that 80 to 85 plus or minus million dollars of revenue where we see the break-even point and then obviously grabbing the scale from there. So I don't think you're going to see a tremendous shift. I don't think it's become autobot in terms of delivery. That's not what we mean by that. What we mean by that is we still have the same amount of people power delivering those services just through an automated means, not fully automated in and of itself.

I got you. And just a couple quick ones around executive search consultants, you know, being down about 20 year over year. I'm just curious, you know, after we account for promotions, just a general sense of if this is you know, typical attrition you see during unprecedented global events? Is there anything else there that drove the year decline?

Yeah, you know, I mean, the decline is primarily attrition here, Josh. The decline, if that's your question, was really driven by, you know, the restructuring and the cost takeouts that we did. Our attrition has been at a really low level, And, you know, in the beginning of this year, we've now promoted 17 new consultants into the ranks. We've got our partner promotion process underway right now. And in strategic areas, we continue to hire. In fact, I think just from the beginning of this year, we've onboarded already six new consultants. So, you know, we're optimistic on those fronts. So that number reflected December 31st and where we were, and we continue to look ahead positively into the market.

That's great. You answered my next and last question, but, you know, productivity, you know, is remarkably run around 1.8 to 1.9 million today. You're at 1.5. You just had some promotions and some hiring, but do you still think, is that still a target, a 1.8 to 1.9 million for consultant productivity?

Yeah, Christian and Mark, you can augment this. Yeah, look, I think that Our aspiration is to get back to about that 1.8 level. I think that, you know, our expansion into some geographies and places where that's going to be a bit more challenging will dampen that a bit. I think at least a ramp up of it. But as people, you know, come on board to our platform and they begin to perform, we expect we can get back to those numbers.

Gotcha. Well, Christian and Mark, thank you again for taking my questions. Thanks, Josh. Thank you.

Our next question comes from the line of Toby Summer from Truist Securities. Your line is open.

Thank you. To ask a margin question from sort of a different angle, what do you think the sort of new EBITDA margin level should be if this expansion is fortunate enough to have a nice multi-year expansion with revenue growth. How does this EBITDA margin kind of compare to prior cycles, do you think?

So we looked at it from prior cycles, Toby. Fair enough question. Kind of when we were back to, you can go back to 2012 when we published our EBITDA margin of around 8%. So we're in the single digits during the great financial crisis. This time around we're about 11.3 last quarter. We just talked about it being 11.4, but on the year 11.3. So, I think in terms of faring through it, I think we've done, again, a heck of a job. Obviously, that's a justity, but a margin to speak to. I think what you're also asking is, where does it go from here? Do we get back up to the 12.5% to 13% where we were in 18-19? Obviously, we'll be able to do that. In terms of the new cost structure, we would expect, again, more to be added on top of that in terms of the margin expansion. And then as we start to get through our strategic initiatives, which is what the end goal is, is to further increase that margin expansion even further. It's hard to give you scale on that right now. Obviously, we want to be a little bit cautious. We'll give you a little bit more in Q1 and Q2 as we're going through it. But you can bet that's primarily what we're really focused on, which is new initiatives, more profitability, enhanced value for our shareholders, and we think that's really going to pay off pretty well.

Our next question comes from the line of Brian Winn from Credit Suisse. Your line is open.

Hey, guys. It's Brian on for Kevin. Congrats on the quarter. I appreciate, you know, all the comments here about consultant productivity. You know, I think that certainly came in ahead of what we were looking for. So, you know, we're just sort of curious just how you guys are thinking about, you know, sort of balancing, the headcount additions here as we move forward post pandemic versus, you know, carrying forward kind of some of the, you know, everything you've learned here just in the, in the virtual service model.

Yeah. Let me, let me, let me take that first. And Mark, if you want to add to that, please do. Look, we're thinking about this very strategically in our, in our hiring model. So we've got, and we've identified target geographies and, and expertise where we know we can grow into, okay? So we look to hire into those spaces. And, you know, we've got our, obviously, our normal promotion cycle as well. So between those two things, we're going to try to balance this thing. And as Mark said, I think really much of the growth still will be people-driven in that at least for search and for consulting individuals required to do that. We'll be more efficient at how we deliver, okay? And that's where we'll see some of the margin improvements come in as a result of that. But it's not going to necessarily be simply just on the headcount side there. I don't know, Mark, if you want to add to that.

Yeah, I mean, I would only add that, you know, keep in mind when we did the downsizing, we talked about that it was less than 10% of our workforce. So we, I think, strategically got the right call that we felt like the market would come back quicker than I think what others had anticipated that was good. We're on our productivity side about 20% off on where our peak productivity used to be. So that means we have room for expansion based on the current cost structure that we have in place. Clearly, we're keeping a very close eye on both in terms of search and hydro consulting. And as we see the market pick up, we will appropriately scale ourselves accordingly for it. So I think that the discipline has been there. And we would expect to see that investment. I would expect that 2021 to be an expansion year compared to the COVID 2020 year that we just went through. But we'll obviously do it, you know, in a very disciplined way. And I think that's the big takeaway that we have room, we'll expand when we think we're going to need to, to again, make sure that we balance it all out.

Gotcha. Thanks, guys. Appreciate that.

Thank you.

Our next question comes from the line of Kevin Steinke from Barrington Research. Your line is open.

Hey, good afternoon. So in your prepared comments, you talked quite a bit about moving into adjacent areas, investing in new product development with a tech-enabled approach. Just wondering if you could talk a little bit more about the types of the products you're looking to build out and related to that, what sort of margin profile we should think about these products and offerings having and what sort of revenue model, perhaps, is there an opportunity for subscription-based offerings, for example?

Yeah. Yeah, look, let me take the first half of that question. So, look, our technology investments, and we're going to be calling that tech solutions, you know, it's going to remain, number one, focused on solving our clients' most critical problems, which is where the Hydric brand sits today. Okay, so we have to keep that in mind. And we spent some time speaking with our clients to understand that we recognize you know, with a lot of the work we've done now, that with our IP, the data we've begun to gather, the insights we're driving, and kind of an emerging platform that we're forming, that we can leverage that to build solutions, but even products that help clients with solving many of these issues. So, you know, Kevin, the brand-new ideas, I won't go into those for competitive reasons, but to give you an example, of where we're investing in creating technology solutions, just in areas that we've already discussed as an example. Take D&I as an example. Take culture as an example. And, you know, we tend to work on those issues with the C-suite, okay, predominantly. And there's a whole cascading of those solutions that we can do to impact the entire organization. And how do we do that and deepen the impact of those offerings across the organization? And some of those models will end up becoming subscription models as well. So I think there is an opportunity to do that. And obviously we think that those models, Mark can maybe talk a little bit more than I can here, will obviously be higher margin as well. So that's the intent. But that just gives you an idea of some of what we're trying to tech enable, the solutions that we already see out there that we're working on, the appetite that that C-suite has to want to expand and how we can help them do that.

Okay, that's helpful. You know, thinking about hydro consulting, what sort of headcount do you think you need to add to get to kind of that 80 to 85 million where you break even? It sounds like you're not going to have to add it. If you're driving greater productivity with the consultants, that the headcount is not going to have to grow commensurate with revenue, I guess. Is that a fair way to think about it?

I think that's a reasonable way to think about it in that we're trying to improve the productivity there as well, primarily through focusing on larger projects around larger client agendas. We call those journeys. you know, kind of trying to work on future-ready leaders, future-ready cultures and organizations, and driving this D&I offering as well, just those being three large umbrellas. So I don't think that it's a one-for-one. We clearly do need to add capacity in there. So we're looking to do that, particularly in areas of high growth. So we will be continuing to grow the headcount, but I think it's fair to think that it's not a one-for-one to be able to drive that.

okay good and then can you just talk a little bit more about asia pacific uh obviously you talked about um america's in europe standing out um but some softness in a a few countries you mentioned there is that just kind of market driven um or you know something something you you wanted to address internally perhaps no it's um

Kevin, it's Mark. We've looked at that. We've looked at it from a market competitor mix, et cetera. And I think what's going on in Asia Pacific is there was this expectation for the most part that Asia had rebound first and it actually did. And I think it's kind of faded out in the sense that one, you still have some lockdowns going on in like Singapore and Hong Kong. Two, India was very affected by the COVID virus and really slowed down in terms of what was going on there. And I also think you have kind of what I call the MNC slowdown. So a lot of the bigger organizations have really kind of slowed themselves down. We're seeing pretty constant trends in others in Asia Pacific. It doesn't feel like it's an idiosyncratic issue within the hydric. It definitely feels more systemic within Asia Pacific. And we'll continue to kind of watch how that develops. I would imagine as things get back to what I'd call normal, and I use an asterisk with that, I think Asia Pacific will accelerate because I think then decisions will be a little bit easier for where we target our customers and our clients in Asia Pacific. And that'll maybe unlock it a bit more, but it definitely feels like a lot of our, I'll use the word competitors, but a lot of businesses within Asia Pacific are experiencing the same thing, that it rebounded initially quite nicely and then it's really kind of just flattened itself out a bit in terms of getting through it. And some of that can be attributed to COVID and some of it can be attributed to to decisions still needing to go back to the U.S. or Europe in order to get decisions to be made in Asia Pacific and unlocking its value.

Okay. Thanks for taking the questions. Appreciate it. Thank you.

As a reminder, if you have questions, please press star 1. We have a follow-up question coming from Toby Summer from Truist. Your line is open.

Thanks. With respect to deploying capital to further your strategy, what are you seeing in terms of valuations given sort of the snapback in equity markets and capital markets of just about every flavor?

Thanks. That's right, Toby. I'll try to answer it the way that I would hope to see it, and then I'll probably turn to you and ask you how it's going to be foreseen. Again, let's assume scale, that, you know, we properly venture off on the right technologies and the way that we expect our strategy to play out and those verticals. And the idea, I would imagine at some point, like we talked about, and we'll use SaaS because that was thrown out earlier in the conversation, if we have a scalable SaaS business and that's generating SaaS-type margins, I'm imagining from your side it would be, you know, the valuation would expand on some of the parts, right, that you have a SaaS business doing this, you have an executive search business doing that, Higher consulting, again, assuming scale, et cetera, would be off the races in terms of its growth versus other growths, et cetera. And that's hopefully how it would all kind of come back into the valuation methodology. Clearly, we have the liquidity and the capacity to execute on our strategy. So it's not something where I feel like, again, I don't need to go out and seek leverage or insane amounts of leverage or equity offerings, nothing that would impact the shareholder in that sense. Because I think we do have a very strong balance sheet to be able to pivot ourselves and to do it and execute it appropriately. But the valuation would hopefully come back in both from the execution, the way that we were able to do it. That is not really increasing equity to do it. We've got the balance sheet and leverage if we so choose. And then hopefully in and of itself, the multiples that you would expect to see on those different parts of the business and those journeys would come back into the stock price.

Okay, thank you. Could you comment on what you're seeing and maybe expecting in terms of not just cyclical growth as we come out of a recession and have an expansion, but maybe some potential secular drivers like retiring baby boomers and I feel that some investor questions about rejiggering of corporate supply chains as a result of you know, the trade dispute in recent years, but now pandemic on top of that and what that could mean to demand for search as well as consulting? Thanks.

Yep. I think, look, some of the, you know, if we kind of like think about it over the course of the year, you know, look, we're going to see, we believe we're going to see demand come back in pretty much all of these areas, all of the verticals that we operate in. So, That's just normal demand that we do think is going to come back. But underlying that, I think that there's going to be some changes here. I think we're going to continue to see some spikes in the work at the top in the board-related work that we do with themes such as diversity, with sustainability. These are going to continue to drive demand at the top of the house. We think CEO-level activity is likely going to, you know, go up a bit as well because, you know, COVID made changes at the top difficult for employers as well as leaders. We think that culture work is going to continue to rise. You know, this is a top concern of leaders. You know, how has their culture fared over the last year really? And we think that at a macro level, all the D&I work is going to continue to occur as well. We do see, you know, going back into your commentary, you know, linked a little bit to the CEO, but broader to the C-suite, we do see likely some more retirements that will happen in the upcoming year. A lot of it because many leaders just wanted to stay with their teams who were thinking about retiring and just kind of now will, as the pandemic continues, hopefully work our way out of it, we'll feel more comfortable that their teams are well set and be able to make their own personal decisions as well. So these are all themes that we do see out there.

Thanks. And last question for me. Are you seeing incremental demand as a result of D&I rules around board composition? And with respect to D&I demand, is it Is it driving new C-suites and executive positions or sort of side out rotation and turnover in their existing seats?

Yeah. Let me take the second question. And so I think what we're seeing there isn't necessarily a whole bunch of new positions, OK? So positions have existed. I think it's sort of as people begin to think their whole C-suite succession planning, how to think about the team, how to think about diversity on their team, what the pipelines look like, et cetera. So I think it's really people understanding and acknowledging that diversity matters and how it impacts the overall performance of the team and trying to go there with that. So it isn't necessarily new positions, though there are a few new companies that may not have had them, but I don't consider those to be necessarily, you know, everybody's trying to come up with this new title. I mean, I might give you an example separately on, at least in the last couple of years, on sustainability, that people establish new roles to oversee sustainability. I think on diversity and inclusion, that already happened five years ago, and whether they were successful or not is the question. What was your first question again? Let me come back to that one.

I think you kind of addressed it in your answer to the second one.

Thank you. Great. Thank you.

We have no further questions at this time. I will now turn the call over back to Mr. Krishnan, Raja Gopalan. Sir, you may begin your final comments.

Great. Thank you. I'll just be brief here. But thank you, everyone, for joining our call. We certainly appreciate it. We're optimistic about the year ahead and excited about the new initiatives that we've got in place and are going to be driving this year as well. You've heard us talk about some of those on today's call. Look, we're still not out of the woods yet, so please be safe, and we look forward to speaking with you in the next quarter as well. Thank you.

Thank you again for participating. This concludes today's conference call. You may now disconnect.